Pound Sterling holds strength against US Dollar on firm Fed rate cut bets for June

• Pound Sterling exhibits strength against US Dollar ahead of US NFP data.
• BoE policymakers want inflation to come down sustainably to 2% before a shift to policy normalization.
• Fed Powell expects the central bank is closer to gain confidence that inflation will decline to the desired target.

The Pound Sterling (GBP) turns sideways in Friday’s European session as investors remain sidelined ahead of the United States Nonfarm Payrolls (NFP) data for February, which will be published at 13:30 GMT. The broader appeal of the GBP/USD pair is upbeat as markets broadly expect the Federal Reserve (Fed) to cut interest rates before the Bank of England (BoE) does so, which might reduce the policy divergence between them for some time.

While market expectations for a Fed rate cut are for the June meeting, investors see the BoE reducing interest rates from August. Inflation in the UK is still higher than in other developed countries in the Group of Seven (G-7) nations due to sticky services inflation, which is driven by robust wage growth.

Next week, the UK’s Average Earnings data for the three months ending in January will provide fresh guidance on the inflation outlook. Strong wage growth momentum would further dampen rate-cut expectations. BoE policymakers warned that wage growth remains almost double what is required to be consistent for inflation to return to the 2% target. 

Daily digest market movers: Pound Sterling turns sideways after strong rally

• The Pound Sterling vs. US Dollar trade is broadly stable after rallying to the round-level resistance of 1.2800. Investors are expected to remain on the sidelines ahead of the crucial United States Employment data for February.
• Economists anticipate that US employers added 200K jobs, lower than the robust hiring of 353K seen in January. The Unemployment Rate is anticipated to remain unchanged at 3.7%. Investors will also focus on the Average Hourly Earnings data, which will provide more cues on the inflation outlook.
• Investors should be prepared for highly volatile action as a drastic change in US employment numbers would influence market expectations for the Federal Reserve rate cut in the June policy meeting. Expectations for a rate-cut decision in June remain firm as Fed Chair Jerome Powell sounded less hawkish in his two-day testimony before Congress.
• The GBP/USD pair is set for weekly gains, mainly due to the weak appeal for the US Dollar. Next week, the Pound Sterling will be guided by the UK’s labor market data for three months ending in January, which could provide some cues about when the Bank of England will start reducing interest rates. Currently, market expectations for a rate cut point to the August meeting.
• BoE policymakers have refrained from specifying any time frame for lowering borrowing costs, saying that cuts are not appropriate until they get confidence that inflation will return sustainably to the 2 % target.
• Meanwhile, UK house prices have risen for a fifth straight month due to a recent fall in mortgage rates and expectations that rate cuts are around the corner. The mortgage lender Halifax reported that house prices rose by 0.4% in February on a month-on-month basis.

Technical Analysis: Pound Sterling approaches six-month high near 1.2830

Pound Sterling refreshes a two-month high at 1.2820. The GBP/USD pair strengthens after an upside break of the Descending Triangle formed on a daily time frame. A breakout of the aforementioned chart pattern results in wider-than-average ticks on the upside. The pair is an inch away from revisiting a six-month high at 1.2827.

Upward-sloping 20-day and 50-day Exponential Moving Averages (EMAs) at 1.2690 and 1.2660 suggest more upside.

The 14-period Relative Strength Index (RSI) rises to 70.00, indicating that a bullish momentum is active now.